GTR speaks with three very prominent exporters in Africa, Asia and Europe to discover which areas of legislation are affecting their business and that of their peers.

Ngozi Okonkwo
Chief Legal Officer, Lagos

Oanda is one of Africa’s largest integrated energy solutions providers. Ngozi Okonkwo is based in Nigeria.

In a recent report entitled Importing for Export Success, HSBC’s CEO Alan Keir wrote: “Imports used in the right way benefit businesses and the overall economy by boosting productivity and driving export growth. Far from being the enemy of manufacturing, they are the overlooked ally of many smart businesses.”

It’s perhaps understandable that exporting companies in Nigeria, then, express concerns over the country’s Import Prohibitions List (IPL). The list comprises 24 categories, stemming from food products to vehicles, and takes in many essential goods. So comprehensive is the list, the World Bank has accused it of increasing “the number of people living below the poverty line… who cannot afford the inflated prices”.

“It goes beyond energy,” says Ngozi Okonkwo. “But this might all change in the years to come. There is currently no ban on the import of petroleum products, because we don’t have refineries. But with the Dangote refinery project, it’s all up in the air.” Okonkwo is referring to the US$9bn construction project to build Nigeria’s largest refinery and fertiliser plant. In September last year, the company secured US$3.3bn in debt finance from a group of banks to get the project moving. “If regulation changes in this area,” says Okonkwo, “it could have a big impact on Nigeria’s petroleum industry.”

The legislation is in place to protect local industry and in some cases, says Okonkwo, it works. And in a country in which 80% of the government revenue and 95% of export revenue comes from one sector, it’s unsurprising that further laws have been passed on the crude sector in order to limit the chances of capital flight. For instance, upstream crude companies are required to repatriate their proceeds into a domiciliary account opened with a Nigerian bank within 90 days from the date of the export.

According to a report by law firm Hogan Lovells, “in certain scenarios, particularly in structured trade finance contexts, foreign lenders who may have taken security over those offshore accounts or who look to those accounts for repayment are uncomfortable with the back and forth movement of the export proceeds and will usually seek some form of comfort”. Often the lender may ask the exporter to approach the government for a waiver on the repatriation rule, which is rarely granted. As such, the regulation can have a detrimental effect on the finance available to Nigerian exporters.

In a similar vein, the local content act of 2010 stipulates that for exporters, “10% of total revenue from Nigerian operations [are] be retained in a Nigerian bank account”. Okonkwo says the law is ambiguous and open-ended. “Again, they’re trying to encourage the retention of cash within the country and cut-down on capital flight. But there’s no clarity: it doesn’t say for how long you have to do so [retain the cash].”

The actions of the Central Bank of Nigeria in January showed that the ripples of Basel III regulations are being felt there too. According to a new ruling, Nigerian banks will have to increase their capital levels by up to N360bn (about US$2.2bn) in 2014 in order to meet international standards. As we’ve seen elsewhere in the world, some of the burden is likely to be felt by borrowers, and in Nigeria’s case, the most likely victims are small exploration businesses.

Pascal Serre
Vice-president, head of project finance and credit, Alcatel-Lucent

Alcatel-Lucent is a global telecoms company, specialising in internet provision and cloud networking, as well as ultra-broadband fixed and wireless access. Pascal Serre is based in Singapore.

In times gone by, the telecommunications industry grew mainly through government investment, with public institutions becoming national behemoths. Opening up to the private sector allowed the industry to expand globally, with competition accelerating innovation, and bringing billions of people around the world onto the telecoms grid. This lineage, says Pascal Serre, creates its own legislative issues.

“The telecoms sector is facing a socio-economic paradox. On one hand, communication was always a public monopolistic utility and a national objective. On the other hand, we ask fully or partially-privatised companies to act as rational economic players in a competitive market, [even though they have] major objectives such as profitability and return on investment. Regulators should always keep in mind both sides of the coin in mind – regulation should be based on a genuine mix to achieve a subtle equilibrium.”

Much is made of the telecoms revolution and the barrier-breaking and unifying impact of the internet. However, the industry itself falls short when it comes to joined-up regulatory thinking, with disparate regimes in almost every country. The aforementioned delicate balance between public necessity and the seemingly conflicting aims of the private sector are being borne-out in recent trend of “forced localisation”, which has seen governments in the likes of Indonesia and India promoting preferential market access and obligation of local content in the areas of manufacturing.

Serre says: “The debate on forced localisation is also observed in the localisation of data centres for cloud services, evoking the issues of cross-border data flows and privacy. All the major international and regional privacy policy frameworks such as the OECD privacy guidelines, the COE treaty 108 and the EU directive 94/95, recognise the importance of both protecting the individual’s right to privacy and the economic and societal importance of cross-border data flows.”

The localisation movement hinders uniform regulation and policy development. For exporters, it means they have to adopt differing strategies for every single market they operate in, a fact which grows more complex with the size of the organisation. The cloud computing industry in Asia could support 14 million jobs and generate turnover of more than US$2tn a year, according to the Asian Cloud Computing Association – but only if exporters, developers, regulators and governments work together across the region, says Serre.

He also suggests that a lack of incentivised tax models may be limiting innovation in the region’s telecoms sector. He explains: “On the tax front, we think that a new model that incentivises the deployment of new technologies may help. In addition to the spectrum licence fee [the annual fee paid to national governments for the use of the airwaves used to make calls, etc], a number of local taxes and fees may be applicable to equipment and its installation and operation.” This may have a particularly detrimental effect on businesses which operate small and numerous sites, who may be subjected to numerous instances of levies.

Jon Coleman
Chairman, British Exporters Association (BExA) and assistant treasurer, credit insurance & export finance, BAE Systems

BAE Systems plc is a British multinational defence, security and aerospace company. BExA is the membership organisation for UK exporters. Jon Coleman is based in London.

It’s been a busy few years for most European regulators, but few can have been as assiduous as those in the UK. The Vickers Report, the fruits of the Independent Commission on Banking, made sweeping recommendations for the UK’s financial sector, but paramount amongst them all was the ring-fencing of banks’ retail and investment banking divisions.

Ostensibly, trade finance activities shouldn’t be categorised alongside areas of so-called “casino banking”. A breakdown on the report from Shearman & Sterling, a law firm, reads: “[Banks are] permitted to provide limited credit services such as lending to individuals small and medium-sized organisations, providing trade finance and project finance and advising on and selling products from non-ring-fenced banks which do not give rise to exposures for the ring-fenced banks.”

However, as we saw with the Basel III regulations, there can often be ambiguity around what does and doesn’t constitute trade finance, and thus whether it should be subjected to various rules. Jon Coleman says: “One of the unintended consequences of ring-fencing may be the erroneous categorisation of trade finance. How do you define and categorise it? What is the optionality on TF products? This is something that’s come from the banks and is something BExA will be taking on from an exporter’s point of view. It might lead to an increase in costs for smaller exporters, rather than larger ones. It also has an impact on some derivative products, such as options on currency swaps, which are important in trade finance. We don’t want to see a degradation in trade finance product availability resulting from poorly drafted legislation.” Further details are expected to emerge from the Vickers Report application in March.

Across the board it seems that it’s the smaller companies that fall foul of legislation. With the aforementioned Basel III regulations, banks have consolidated their operations, focusing mainly on their existing relationships with corporate clients rather than servicing SME clients. “With the large guys, risk of insolvency is generally minimal and most banks have a real focus on those relationships. If you’re a smaller exporter, regulation has made it difficult to access funding and trade finance products,” says Coleman.

However a slight sweetener may have been the Basel committee’s decision in January to make a number of concessions regarding the regulation. Banks have been granted an extension for fulfilling leverage cover ratio (LCR) requirements. The requirements have also, in some cases, been reduced. Writing in the Financial Times, BNP Paribas analyst Daniel Davies said: “It was more of a win for the industry than I was expecting.”

Coleman also calls for uniformity in the interpretation of OECD guidelines for export credits, with particular reference to those around combating bribery. On top of the OECD rules, UK exporters have to comply with regulations on bribery at home, which Coleman describes as being “as stringent as anywhere in the world”.

He continues: “For non-OECD countries, the regulation is going to be less constraining. UK exporters already know the consequences of falling foul of the UK’s bribery act; you’ll end up in prison. The OECD guidelines can be gold-plated when translated into practice in the UK, resulting in more red tape. This makes it more difficult for small exporters to comply with. Within the EU, you would think it might be possible to get the various national ECAs to agree a standard of approach when applying the guidelines in their application processes and policy wordings across the piece.”